Australia crackdown on Google taxes seen holding investment risks

Australia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands. (Reuters)

SummaryAustralia has announced a crackdown on tax practices that big firms use, legally, to shift income to countries with low tax rates such as Ireland and the Netherlands.

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DOUBLE IRISH DUTCH SANDWICH

In a highly unusual speech on Nov. 22, Australia's Assistant Treasurer David Bradbury took aim at Google Inc, describing in detail the strategies it has reportedly used to minimise corporate tax payment.

"It is not my usual practice to mention companies by name," he said.

Google's tax structures, he said, included a so-called "Double Irish Dutch Sandwich", in which income was routed to Ireland, a royalty paid from the Irish unit to a Dutch subsidiary, and then repaid to a second Irish holding company controlled in Bermuda, where there is no corporate tax. Documents filed with the Australian corporate regulator show that Google's Australian subsidiary paid A$781,471 ($815,074) in tax last year, or about 0.004 percent of revenue, on a net loss of A$3.9 million.

Google Australia's revenues come from service agreements with its US parent company and units in Ireland and Singapore, rather than directly from Australian customers.

"While the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the fine print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google," Bradbury said.

Media reports have said the revenue from Google's Australian advertising would be worth more than A$1 billion. A spokesman for Google said in an e-mailed statement that the company complies with all Australian tax laws. The success of governments' tax campaigns against the multinationals is seen hinging largely on whether they can work together.

"It is very important that Australia engages with its counterparts overseas on this reform," said Stacey, of the Institute of Chartered Accountants.

"Otherwise you end up with a nation-state squabble over how to divide up the pie. If Australia increases its tax revenue from a single transaction, that means some other country will get less tax out of that transaction," he said.

He said major nations would need to minimise corporate dealings with low-taxing jurisdictions, such as Ireland and Bermuda.

Another tax expert believes that governments will prevail in their battle to capture more tax revenues. "Those companies like Google and Amazon and Apple have had a very good run for a number of years, and this run is going to stop now. They will start paying more tax," said one adviser to big firms, who declined to be named because he was not authorised to speak to the media.